Dollar-Cost Averaging

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So far, we have covered a variety of ways to analyze a stock and inevitably reach an investment decision. Slowly you will begin to build your portfolio, where it might be helpful to begin employing some investing strategies. 


Dollar-cost averaging is one of the most common strategies for investors. It’s like giving your investment account a monthly paycheck to spend on select stocks. The purpose of dollar-cost averaging is to set up recurring investments to reduce a teen investor’s average cost per share


Average cost per share is as it sounds, the average cost of the stock you own. When you buy at several price points, you might buy two shares at $15 and half a share at $20. Then to determine what our average cost or cost basis will be we take the total value of the stock we own and divide it by the number of shares we have. In this case, it would be $16 ($30 + $10 / 2.5).


Additionally, dollar-cost averaging helps lighten the impact of volatility in a stock. For example, if one day you have $100 to spend on a volatile stock that is $20, you can buy 5 shares, but the following week the stock drops to $10. With dollar-cost averaging, you would be investing $10 a week into the stock. Through dollar-cost averaging your average cost would be $13.33 per share ($20 + $10 / 1.5) after two weeks, while it would be $20 if you decided to invest it all right away.


The dollar-cost average strategy is most frequently used by passive investors. A passive investor is someone who will often hold an investment for a long period of time with minimal trading activity. It can be extremely convenient and stress-free for an investor since you don’t have to worry about timing the market and know that you are consistently investing.


Now, how do you do this work on Bumper? Well, it is coming very soon. Stay tuned and start building out your portfolio to begin dollar-cost averaging!


The next strategy on deck, we have value investing, which is the secret behind Warren Buffet’s legendary investing career.

Source: Investopedia | Dollar-Cost Averaging (DCA)

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Disclosure: Alpaca does not make recommendations with regard to fractional share trading, whether to use fractional shares at all, or whether to invest in any specific security. A security's eligibility on the list of fractional shares available for trading is not an endorsement of any of the securities, nor is it intended to convey that such stocks have low risk. Fractional share transactions are executed either on principal or riskless principal basis, and can only be bought or sold with market orders during market orders.
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This is not an offer, solicitation of an offer, or advice to buy or sell securities, or open a brokerage account in any jurisdiction where Alpaca is not registered (Alpaca is registered only in the United States).

View Alpaca's disclosures at: https://alpaca.markets/disclosures

Alpaca does not make recommendations with regard to fractional share trading, whether to use fractional shares at all, or whether to invest in any specific security. A security’s eligibility on the list of fractional shares available for trading is not an endorsement of any of the securities, nor is it intended to convey that such stocks have low risk. Fractional share transactions are executed either on a principal or riskless principal basis, and can only be bought or sold with market orders during normal market hours.

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